Will the ‘Panama Papers’ Bring Down Ukraine’s Chocolate King?

This post has been updated. 

Ukrainian President Petro Poroshenko came into office in 2014 vowing to fight his country’s endemic corruption and break the bonds between business interests and politics in Ukraine. That’s going to be a lot harder now that leaked documents have revealed a secret offshore company setup in Poroshenko’s name and not disclosed in his public income statements.

Ukrainian politicians wasted no time in using the revelations put forward against Poroshenko in the so-called “Panama Papers” — a trove of 11.5 million documents leaked from the Panamanian law firm Mossack Fonseca — to announce efforts to oust Poroshenko, who adamantly denies that he did anything illegal.

Oleh Lyashko, a populist politician and the head of Ukraine’s Radical Party, wrote on Facebook Monday that he plans to launch impeachment proceedings against Poroshenko due to his offshore holdings in the British Virgin Islands.

“We demand the creation of a special temporary investigative committee in parliament that would probe the secret offshore companies and accounts of Ukrainian President Petro Poroshenko,” Lyashko said.

The call was echoed in a Facebook statement by the pro-Western Samopomich party on Monday, who also said that they will call for the creation of a committee in parliament to investigate the allegations against Poroshenko.

German newspaper Süddeutsche Zeitung acquired the Panama Papers, which were shared Sunday by the International Consortium of Investigative Journalists (ICIJ) alongside the Organized Crime and Corruption Reporting Project (OCCRP). None of the accounts associated with Poroshenko’s offshore firm held more than $3,080 but the reports allege that the offshore accounts may have saved the president millions of dollars in Ukrainian taxes. Moreover, the reports note that Poroshenko’s actions might be illegal for two reasons: starting a new company while president and failing to report the company on disclosure statements.

Using offshore entities is entirely legal and the practice is not uncommon, especially in Russia, Ukraine, and other former Soviet countries. Offshore accounts can be used by business people for a variety of reasons, from estate planning to circumventing hard currency restrictions. However, they may also be used to avoid paying taxes and embezzlement, Maggie Murphy, senior global advocacy manager at Transparency International, told Foreign Policy.

“Any legitimate business person should be thinking about how clean they wish their business to be,” Murphy said. “I would definitely have concerns that a public official was setting up offshore as a way to avoid paying taxes.”

A self-made tycoon and one of Ukraine’s richest men, Poroshenko was elected after the Maidan protests that ousted former Ukrainian President Viktor Yanukovych. Referred to as the “Chocolate King” in media reports, Poroshenko made his fortune with Roshen, a massive confectionary company. Beyond the candy business, he also owns a major TV channel, with his private wealth estimated by Bloomberg Business at $720 million. On the campaign trail, Poroshenko said that he would sell his company, but he instead later created a blind trust to oversee the management of the company.

Poroshenko was traveling to Japan on Monday, but a statement released on the president’s official Facebook page said he might be the first top Ukrainian official to ever declare his assets “in full compliance with the Ukrainian and international private law.”

“I am not participating in management of my assets, having delegated this responsibility to the respective consulting and law firms,” Poroshenko said in the statement.

Poroshenko has had his hands full since becoming president, dealing with Russian-backed rebels in eastern Ukraine and reforming the political system in Kiev. However, the sluggish pace of reforms has seen Poroshenko’s popularity shrink and drawn criticism from Ukraine’s Western backers, like the United States and the International Monetary Fund.

In a statement provided to reporters, Avellum Law Firm, the company appointed to arrange the transfer of Roshen to a blind trust, said that the “tax evasion allegations are groundless” and that the “establishment of a foreign structure does not affect the tax burden of Roshen group in Ukraine.”

“We underline that companies in foreign jurisdictions are necessary and are used merely for the transfer into the blind trust. These companies did not open bank accounts and did not carry out any financial transactions,” the statement said.

Roshen saw its sales drop by roughly 25 percent  after Russia banned imports of the chocolate in 2013 amid a growing economic spat between Kiev and Moscow over whether Ukraine would sign a trade pact with the European Union. Since his election, Poroshenko has struggled to find a buyer for the candy company.

Lyashko’s efforts to launch impeachment proceedings are unlikely to get very far because Ukraine still lacks a law spelling out how such a process may proceed. Moreover, Mustafa Nayyem, a member of Poroshenko’s parliamentary bloc and a leader of Ukraine’s 2014 Maidan protests,  wrote on Facebook that the president’s failure to disclose the accounts outlined in the Panama Papers does not constitute “a criminal offense.”

“This means that impeachment proceedings that have been written about so much already will be simply impossible to begin,” Nayyem said.

Photo credit: David Ramos/Getty Images